Is Apple a Buy Right Now?

By Sasha Cekerevac, BA Published : September 5, 2012

The recent ruling in the patent lawsuit in favor of Apple Inc. (NASDAQ/AAPL) against Samsung Electronics Co. Ltd. (KRX/005930) is seen by some as a big blow to Samsung. Many looking at technology stocks are looking at jumping aboard Apple simply because of this victory; I would say that’s a mistake. Technology stocks in this sector are constantly evolving and innovating, and market sentiment will also shift among the stocks; Apple’s victory will be short-lived. One has to be careful not to jump into technology stocks for the wrong reasons or as soon as market sentiment begins to shift.

First off, let’s not overthink the situation. Apple is a clear beneficiary among the technology stocks in the mobile phone sector. Market sentiment is, of course, extremely bullish of Apple, which makes entering a new position at these lofty levels quite dangerous. Market sentiment will continue to remain positive, but I would wait for a pullback and a more attractive entry option in Apple. The Relative Strength Index (RSI) is near its highs, and that has traditionally meant that market sentiment is close to peaking over the short term.

Samsung is not traded in North America, but among technology stocks, it is clearly building a huge amount of momentum. It will appeal the ruling, no doubt, but even if it is not successful, I think the market sentiment is far overdone in this case. This patent case was for older handsets of Samsung. It does not include the best-selling “Galaxy SIII.” Older models have seen a huge fall-off in sales anyway, so the real hit is far less than market sentiment is indicating. If the current ruling holds, Samsung will lose approximately 1.4% of profits for the phones that are to be scheduled to be banned. Compared to the sell-off in the stock price, market sentiment was far over-exaggerated. Don’t forget; this does not apply to any new devices, and Samsung will adjust future products accordingly. Its massive gains in market share show that it certainly does have its finger on the pulse of the consumer among technology stocks.

Apple is soon to unveil its newest “iPhone.” The market sentiment for this new device is sky-high. We will have to see how much of an improvement this new device is over the previous model. The interesting point is that all of these devices now are extremely well made. At some point, one would think growth would decelerate from the simple standpoint of over-saturation. Up until now, technology stocks like Apple with massively positive market sentiment haven’t hit those limits.

Chart courtesy of www.StockCharts.com

Overall, I would look to leading technology stocks, such as Apple, on pullbacks. The problem is that so many have such a bullish market sentiment that it’s dangerous stepping into the market now. With September being one of the worst trading months of the year, I would be cautious about accumulating too many technology stocks right now. Wait for a shift in market sentiment, and try to be opportunistic.